Evening Report | May 13, 2022
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Your Pro Farmer newsletter is now available... USDA’s May crop reports featured the first official 2022-23 balance sheets and its initial 2022 winter wheat crop estimates. It was the winter wheat crop that caught traders by surprise, especially the HRW estimate, which came in 95 million bu. lower than the average pre-report estimate. USDA’s old- and new-crop wheat ending stocks forecasts were also lower than anticipated. The corn and soybean ending stocks data was generally neutral – even a little negative for old-crop corn compared to pre-report expectations. The one surprise for corn was a 4-bu.-per-acre cut to the projected yield due to planting delays. USDA has made downward adjustments to yield due to late plantings only a handful of times in the past, the most recent being 2013. USDA’s smaller-than-expected winter wheat crop estimate and early reduction to corn yield puts even more focus on weather amid global supplies concerns. Besides USDA’s monthly update, Brazil, China and others made changes to their crop estimates and balance sheets. We cover all of these items and much more in this week’s newsletter, which you can access here.
Perspective on USDA’s sub-trend yield and comparable years... USDA’s initial projection for corn yields this year in Thursday’s Supply & Demand Report was 4 bu. per acre below trendline due to the slow planting pace. There have been only five other years when USDA went with an initial sub-trend yield due to slow plantings – 2007, 2008, 2009, 2011 and 2013. In four of those years, the final yield ended below trendline, while 2009 produced an above-trend (and then-record) yield after a slow start. Despite slow plantings in 2019, USDA did not lower its initial projection from trendline in May.
Years with planting paces comparable to this year’s 22% figure as of May 8 were 1993 at 17%, 1995 at 22%, 2013 at 19% and 2019 at 26%. The final corn yield was well below trend each of those years by an average of 8.9%, though taking the 1993 disaster out of the equation reduces it to a 5.8% decline. Final acres declined in each of those years from March intentions by an average of 3 million acres. Applying the average acreage and yield (minus the 1993 disaster) changes to this year’s March planting intentions and a trendline yield of 181.0 bu. per acre, it would project a corn crop of roughly 13.4 billion bu. — about 1 billion bu. less than USDA’s May projection. While that figure is based on averages from those years, it seems like a worst-case scenario – for now.
U.S., EU officials mull options to help with Ukraine ag exports... As we reported in “First Thing Today,” the European Commission (EC) proposed helping Ukraine export its wheat and other grains by rail, road and river to get around Russia’s blockade of Black Sea ports, which is preventing those critical supplies from moving onto the global market. As a followup, U.S. and EU officials are discussing options to help Ukraine export grains and other ag goods. One option would be to have U.S. ships in international waters provide protection for Ukraine shipments. It could be a critical development if the U.S. sends ships into international waters to help move Ukraine farm products for export.
House lawmakers blast STB commissioners on rail service... House Transportation and Infrastructure Chairman Peter DeFazio (D-Ore.) charged the railroads for “abysmal” service and challenged Surface Transportation Board (STB) commissioners to “act quickly and decisively to protect the railroad network.” DeFazio criticized Wall Street’s influence on Class I railroads’ operating models. “Stock buy backs and dividends cannot be the sole measures of success for freight railroads,” he said. “The ability for Wall Street to extract massive capital out of the railroads will undermine the U.S. freight rail network.” He praised STB commissioners for actions already taken to address rail service, but said changes are moving too slowly. “Let me be crystal clear that if the STB doesn’t move more quickly to rise to the occasion, this committee will legislate,” DeFazio said.
STB Chairman Martin Oberman told the subcommittee rail service problems are due to a shortage of labor spurred by layoffs over the past six years, during which the Class I railroads cut their workforce by 29%. “With demand back, and against the backdrop of these significant labor cuts and other changes, railroads face major holes in their service…,” Oberman said. “Railroads must maintain a buffer to protect their operations against external shocks, and if they fail to do so, then ultimately, they will suffer—but even worse, their customers and the public will suffer more. What could not be more clear is that, at present — and for the past several years — the major railroads do not have sufficient redundancy to keep pace with rapid shifts in demand.”
National Grain & Feed Association (NGFA) President and CEO Mike Seyfert previously told STB the costs to its members due to lost revenue and additional freight expenses were estimated to be over $100 million in the first quarter of 2022. Seyfert listed several instances of rail service failures and their consequences, including excessive dwell time at origin and delayed train delivery at grain export destinations. “Many NGFA members have a daily risk of slowing or shutting down operations due to reduced and inconsistent rail service,” he said. “Some individual NGFA member companies report losses and increased costs in the tens of millions of dollars and lost or reduced operating days totaling weeks.”
STB announced May 6 it will require all Class I carriers to submit several specific reports on rail service, performance, and employment.
Conab corrects corn production, export forecasts... Late Thursday, Conab corrected the Brazilian corn crop estimate it released yesterday morning. Conab now forecasts the Brazilian corn crop at 114.6 MMT, down 1 MMT from last month, instead of the 600,000-MT increase it initially reported. Conab also changed the 2021-22 corn export forecast. Instead of a 1-MMT increase to 38 MMT that was previously released, Conab kept its export forecast at 37 MMT, unchanged from April.
USDA raises beef production, exports and the projected price for 2022... USDA raised its 2022 beef production forecast by 40 million lbs. from last month due to “more cattle placed in feedlots sooner than normally expected due to drought conditions and higher cow slaughter.” Beef production is still expected to decline 0.4% from last year. USDA raised its beef export forecast for this year by 56 million lbs., though shipments are still expected to decline 2.6% from last year. The average cash steer price was raised 60 cents from last month to $140.10, which would be up $17.70 from last year.
For 2023, USDA projects beef production will fall 6.8% amid expected declines in both fed and non-fed cattle supplies. Beef exports are projected to drop 12.7% on lower production and higher prices. USDA’s initial average cash cattle price forecast for 2023 is $153.00, which would be up $12.90 from this year.
USDA lowers pork production, exports and the projected price for 2022... USDA cut its 2022 pork production forecast by 36 million lbs. from last month on lighter-than-expected carcass weights. Pork production is now expected to decline 2.3% from last year. The pork export forecast was lowered and is now expected to fall 6.4% from last year. USDA lowered the average cash hog price outlook to $71.10, down $1.90 from last month but still up $5.10 from last year.
For 2023, USDA projects pork production will rise 1.2% amid an expected increase in farrowings and continued growth in productivity. Despite the higher production outlook, USDA projects pork exports will decline another 1.1%. While it gave no reason for the lower export forecast, it’s likely tied to reduced imports from China. USDA projects the average cash hog price will be $71.00 next year, which would be down a dime from this year’s forecast.
Outlaw: Crop insurance key to avoiding another farm economy downturn... A report from Dr. Joe Outlaw, Professor and Extension Economist, Co-Director, The Agricultural and Food Policy Center at Texas A&M, says: “According to USDA survey data, U.S. agricultural producers, on average, have relatively low debt and many are in quite strong cash flow positions. Low debt makes farmers much less vulnerable to a collapse in land values. But, I think the biggest reason the U.S. won’t see a crisis like the 1980s again is the federal crop insurance program. Crop insurance had very low participation during the 1980s with less than 50 million acres covered generally at low levels of buy-up on yield policies. Over time, a lot of innovation has occurred in crop insurance policies. Now, around 225 million acres are covered generally by revenue insurance policies bought up to at least the 70% coverage level. With virtually all cropland covered by some type of policy, significant within year price declines will be covered by revenue insurance. Due to this, there wouldn’t be the tremendous pressure on farm incomes contributing to lower land values and increased loan defaults. What about a sustained price decline scenario? That is where crop insurance coupled with price loss coverage provides significant protection.”
Click here to view Outlaw’s full report.
Fed banks report sharp gains in farmland values... Sharp gains in Midwestern and Plains land values continued through the first quarter of 2022, according to the Federal Reserve Banks of Chicago and Kansas City. The banks’ quarterly surveys of ag bankers in their service areas found Central Corn Belt farmland jumped 23% through March 31 and the value of Central Plains farmland rose more than 20%.
In addition, the value of “good” agriculture land across Indiana, Illinois and Iowa rose 4% in the first quarter compared to the fourth quarter of 2021. In Nebraska, Kansas, Oklahoma, western Missouri and the mountain states of Colorado, northern New Mexico and Wyoming the value of dryland cropland, irrigated cropland and ranchland increased 5% in the first quarter compared to the end of 2021.
Driving the gains in farmland values were favorable net farm income, low interest rates and relatively tight supply of farms available for purchase, the banks report.
On a state-by-state basis, the price of Illinois farmland rose 18%, Indiana land surged 23%, Iowa farmland exploded 28% and southeast Wisconsin farmland increased 13%. The Kansas City Fed bank reports the value of dryland cropland in Kansas boomed 29%, western Missouri saw a 22% surge, the mountain states rocketed 32% higher, Nebraska jumped 24% and Oklahoma rose 16%.
The Chicago Fed bank reports cash rents for the district increased 11% from 2021. For 2022, average annual cash rents for farmland were up 10% in Illinois, 11% in Indiana, 12% in Iowa and 8% in Wisconsin. The Kansas City Fed bank states cash rents for all types of land in its district increased about 15% from last year, the fastest increase since 2013.
House fuel price-gouging bill vote coming next week... House leaders plan to vote next week on a bill to tackle alleged gasoline price gouging, according to Speaker Nancy Pelosi (D-Calif.). The bill would enable the president to issue an emergency declaration making it illegal to increase the price of gasoline. Even if it passes the House, there won’t be enough votes in the Senate to make it law.
